In: Finance
1.. You expect to receive $500 in five years from an investment.
What is this investment worth today if the effective annual interest rate is 12%?
(Round to the nearest cent and do not enter the dollar sign)
2..If $300 is invested at a 4% interest rate, how much compound interest will be earned in 4 years?
(Round to the nearest cent and do not enter the dollar sign)
1. Future value of investment is given by = present value of investment * (1+ interest rate) ^time
Given future value = 500
Interest rate =12%
Time = 5 years
Hence
500= present value of investment (1+12%)^5
Present value of investment = 500/(1+12%)^5
Present value of investment =500/1.76234
=283.71
2)
Compound interest is given as = principal *(1+interest rate) ^time - prinicipal
Given
Principal =300
Interest rate=4%
Time = 4 years
Hence
Compound interest =300*(1+4%)^4-300
=300*1.169859-300
=50.96
Hence compound interest =50.96